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2019 (9) TMI 384 - AT - Income TaxRevision u/s 263 - erroneous order - Capital Research development allocated expenditure - Disallowance of R D expenditure allocated to Sun Pharmaceuticals Industries (Partnership Firm) - HELD THAT - As relying on own case 2019 (6) TMI 1252 - ITAT AHMEDABAD no reason to disallow the R D expenditure allocated to Sun Pharmaceuticals Industries (Partnership Firm) - Decided in favour of assessee.
Issues Involved:
1. Disallowance of R&D expenses allocated to Sun Pharmaceutical Industries (Partnership Firm). 2. Assessment order's validity under section 263 of the Income Tax Act, 1961. Detailed Analysis: 1. Disallowance of R&D Expenses Allocated to Sun Pharmaceutical Industries (Partnership Firm): The primary issue in this case was the disallowance of R&D expenses allocated to Sun Pharmaceutical Industries (SPI), a partnership firm. The assessee, a pharmaceutical company, had claimed R&D expenses incurred for the benefit of SPI. The Assessing Officer (AO) initially disallowed these expenses, arguing that the R&D expenses should be allocated to the partnership firms since they were also benefiting from the R&D activities. This was based on the observation that both partnership firms were claiming deductions under section 80IC of the Act and showing substantial profits, which were allocated to the partners, including the assessee, who received a significant share of profits exempt under section 10(2A) of the Act. The AO had worked out the R&D expenses pertaining to the firms based on the turnover of the formulations and disallowed the same by adding it to the total income of the assessee. The CIT(A) partly confirmed the AO's order, leading to an appeal by the assessee. The Tribunal referred to its previous decision in the assessee's own case for the assessment year 2010-11, where it had decided a similar issue in favor of the assessee. The Tribunal noted that the R&D expenses were incurred by the assessee for its own business, and the expenditure was allowable if incurred for the business purposes of the assessee, even if it indirectly benefited the partnership firms where the assessee held a majority stake. The Tribunal held that the AO and CIT(A) had erred in disallowing the R&D expenses and directed the deletion of the addition made by the authorities below. The Tribunal emphasized the need to follow judicial discipline and decorum by adhering to its earlier decision in the assessee's case, as the facts and circumstances remained unchanged. 2. Assessment Order's Validity Under Section 263 of the Income Tax Act, 1961: The appeal also challenged the validity of the assessment order passed by the Pr. Commissioner of Income Tax (Pr. CIT) under section 263 of the Act. The Pr. CIT had held that the assessment order dated 14.02.2014 was erroneous and prejudicial to the interest of the Revenue to the extent of non-disallowance of R&D expenditure allocated to SPI. The Pr. CIT enhanced the disallowance and added the expenditure to the total income of the assessee. The Tribunal, however, found that the issue of R&D expenses had already been settled in favor of the assessee in its own case for the assessment year 2010-11 by the Co-ordinate Bench. Since there was no change in the facts and circumstances, the Tribunal saw no reason to uphold the Pr. CIT's order under section 263. In conclusion, the Tribunal allowed the assessee's appeal, deleted the addition made by the authorities below, and held that the R&D expenses allocated to SPI were allowable deductions. The assessment order under section 263 was found to be devoid of merit and was thus set aside.
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